Paper manufacturers thin ranks in ‘irrevocably altered’ global market

Some massive manufacturing machines at Mohawk Fine Papers Inc. plants have been idle in recent weeks.

The company runs its machines around the clock, taking just 11 days off each year. Yet in the past two months, the company has shut down machines in Ohio during some weeklong, unpaid furloughs affecting up to 60 employees at a time.

That’s just one illustration of the recession’s impact on Capital Region paper manufacturers.

Two of the largest—Mohawk Fine Papers in Cohoes, and Finch Paper LLC in Glens Falls—have cut jobs and other expenses to counteract plummeting demand and to position themselves to capture more market share when the economy heals.

“This is the most drastic and quick slowdown I’ve ever seen in my career,” said Thomas O’Connor, chairman and CEO of Cohoes-based Mohawk Fine Papers, where he has worked for 27 years. “I don’t foresee a turnaround this year at all.”

Mohawk Fine Papers eliminated 20 white-collar jobs last week, the first time the company has ever cut jobs.

Late last month, Finch Paper eliminated 43 positions, or 15 percent of its salaried work force.

“We are faced with the deepening reality that the very structure of the global paper market has been irrevocably altered,” said Richard Carota, Finch Paper’s chairman. “We are fighting to make sure that Finch Paper continues to be one of the survivors.”

The two companies aren’t alone. Paper mills around the world are struggling as a result of the near-collapse of the U.S. financial system, said Donna Harman, who heads the American Forest and Paper Association, a trade group in Washington, D.C.

“It was not a steady decline or a slow slide into a recession. It was a fairly dramatic downturn,” Harman said.

The paper and forest industry, which includes paper mills and logging operations, has shed almost 200,000 jobs in the past two years—a 15 percent decline.

Today, the $20 billion industry employs 1 million people, according to Harman’s association.

Dropping demand from key customers, including companies in the housing and newspaper industries, has triggered many of those job cuts. The underlying problem, though, remains with the banking system.

The recession has restricted access to essential operating loans and other credit that paper mills rely on. And banks are also reducing their own paper orders, O’Connor said, citing customers such as Citigroup Inc. (NYSE: C) and Goldman Sachs Group Inc. (NYSE: GS), which have been rocked by the shaky stock markets.

“They’re still buying, but buying less of it,” O’Connor said. “And in many cases, they’re buying less expensive paper.”

Aside from eliminating 20 jobs, O’Connor has cut the company’s travel and advertising budgets by at least 10 percent this year. Yet the company is willing to spend money, too.

“The philosophy here is that we can’t go into the bunker and close the top and just hope this will pass,” O’Connor said. “If you have your house in order, this is the time to be proactive.”

O’Connor is evaluating a variety of acquisition targets, and he remains open to making a deal. He is not negotiating any potential deals at this time, he said.

O’Connor also wants to expand the company’s Internet sales, and he has spent at least $4 million to set up a customer service center and a warehouse in Scotland, meaning that Mohawk can now guarantee overnight delivery anywhere in Europe. The facility opened late last year.

The goal: Expanding the company’s annual foreign sales to $45 million within two years. That would be a 15 percent jump from current levels, and at a nice profit, because the company only ships its most expensive papers overseas, O’Connor said.

Energy and natural gas costs remain high relative to historic levels, but O’Connor is encouraged that prices have subsided since soaring to near-record levels last summer. He’s paying 40 percent less for pulp, which is used to make paper, than he was last year.

The road map for 2009 won’t become clear for another month or so, O’Connor said, as global trends continue to weigh on the industry. He remains optimistic, and says he doesn’t plan to eliminate any more jobs this year.